How to Buy an Apartment Complex in 7 Steps

How to Buy an Apartment Complex in 7 Steps

Melanie is a certified business advisor with over 25 years of experience in real estate investing. Her expertise is highlighted throughout Fit Small Businesss real estate financing, property management, and real estate investing content.

Buying an apartment complex is more involved than investing in single-family properties and requires a deeper understanding of managing property finances. Typically, you can learn how to buy an apartment building in seven steps, including deciding if apartment complexes are right for you and what type of apartment to purchase.

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Buying an apartment building can be simplified into the following seven steps:

1. Decide if Buying an Apartment Complex Is Right for You

Before you start an apartment investing business, you want to make sure it’s the right investment strategy for you. Compared to purchasing single-family homes and small multifamily properties, an apartment building requires more research, more time, and oftentimes more capital and additional expenses. It’s important to weigh the pros and cons before buying apartment complexes.

Pros of Buying Apartment Complexes

There are many benefits to apartment investing. These include recurring income, spreading income across many units, lower per-unit maintenance costs, and the potential for extra income beyond collected rents. Lenders typically base their financing criteria on the property’s performance. The property’s value is often determined by rental income and its overall performance.

Recurring Income

One of the main reasons for buying apartment buildings is ongoing income. If the deal is right and the finances are sound, a good apartment building will throw off recurring monthly income as a positive cash-on-cash return.

Diversifying Income

If you’re an investor who rents single-family properties, you’re probably familiar with a common vacancy problem. If you have no tenants, you lose 100% of your income. Apartment buildings mitigate the effects of a high vacancy rate. If one unit goes vacant, you still have the others to generate income to cover expenses and perhaps still generate positive cash flow.

Lower Per-unit Maintenance

Economies of scale work in favor of the apartment building owner. For example, if you must redo a roof, it’s not just for one unit. That repair serves all the units in the building. If you need to repaint, you can use the same paint for multiple units and not waste materials resulting from only one unit’s need.

Extra Sources of Income

The larger the building, the more likely you can add additional sources of income, such as vending machines, ATMs, and coin-operated laundry facilities. Renting parking spaces and space for billboard advertising can also provide additional income. One pro tip is to charge additional monthly rent for air conditioning units, upgraded appliances, and upgraded kitchens and bathrooms.

Revenue-based Financing

Unlike a single-family property, financing for apartment buildings is based mainly on the financial performance of the building (as opposed to your personal financial and credit situation). So, banks will look mainly at the financial situation with the building for approving a loan. This is advantageous if your FICO score is low.

Valuations Based on Rent Rolls

When buying apartment buildings, the value of the investment is determined in great part by the financial performance of the building. So, if you can increase rents, you can increase the value of your holding.

“A multi-unit apartment substantially lowers risk. A vacancy in a large building is less impactful than a vacancy in a single-family home or smaller apartment building. Landlords of multi-unit properties are able to spread the cost of maintaining the property more than the cost of maintaining multiple singular units. For example, replacing a roof on one apartment building with four units is likely cheaper per unit than replacing roofs on four single-family homes.”

– Ryan Coon, Co-founder and CEO, Avail

Cons of Buying Apartment Complexes

Buying an apartment building is more complex than acquiring a single-family home or even a small multi-unit property. The management will be a bit more intensive and the nature of tenants will be different. In addition, expect more frequent maintenance and property management to be more expensive.

“An additional con of buying apartment complexes is that it can be a relatively illiquid asset. It can be time-consuming and costly to sell an apartment building, and it often involves scheduling conflicts and working with real estate agents. This can put an investor in a difficult situation if they need cash quickly.”

– Todd Stoddard, Blogger, Investor, Simply Urban

Intensive Management

Once buildings are larger than four units, management becomes a much more intensive process. The ability to manage the property yourself becomes an issue, and you need to consider some form of outside management.

One option is hiring a professional property management company. In other cases, you’ll hire an onsite manager. Both come with additional costs and the need to supervise the manager. Typically, property managers charge 10% to 12% of gross monthly rents.

High Tenant Turnover

When tenants move into a single-family dwelling, they usually plan to stay for a long time. They typically become more invested in the property, engage more in community events, and become familiar with the neighborhood. Tenants in apartments, on the other hand, are much more transient.

In a single-family home, it’s not uncommon for a tenant to stay five or more years. In an apartment, tenants stay, on average, less than two years. When buying an apartment building, plan for tenant turnover and higher marketing costs to acquire new tenants.

Less Tenant Care

A renter in a single-family dwelling will tend to treat the property like their own home. However, tenants in an apartment are different. Tenants sometimes don’t treat apartments with the same care, so repairs and maintenance beyond normal wear and tear will be much more common with apartments.

Higher Maintenance Costs

When buying an apartment building, be prepared for higher tenant turnover and less care of the units. You’ll also have more ongoing maintenance with apartments than with single-family properties. Per-unit maintenance costs will be lower the more units a building has, but more time is needed for maintenance and repairs.

Overall maintenance costs are typically higher in apartment buildings. Avail CEO Ryan Coon cautions investors to consider that when major problems arise, such as heating system failure, it will impact more tenants, and repairs will be more costly. Replacing the plumbing system for a single-family home with one bathroom is cheaper than replacing the plumbing for a five-story building.

2. Choose the Type of Apartment Complex to Buy

If you’ve decided that buying an apartment complex is a good option for you, the next step is to consider the type of apartment building you want to acquire. This involves examining your personal and financial criteria for the purchase, the number of units desired, and understanding the class of apartments available for purchase.

More items to consider when choosing the type of apartment building to buy are:

Examine Your Personal & Financial Criteria Before Investing in an Apartment Complex

Consider your level of ambition and risk threshold, since both will affect the kind of apartment investments you’ll consider. The two main considerations along those lines are the number of units and the return on investment (ROI) you’re seeking.

Consider the Number of Units

If you’re conservative and only looking to supplement your retirement income or have a side income, you may want to stay with buildings no larger than six units. If you’re looking for higher income, and willing to take on the associated risks, consider larger buildings with 12 to more than 20 units.

Know the Types & Classes of Apartments

Apartment buildings come in a variety of forms. There are converted houses with multiple units, garden apartments with two stories, and properties with a dozen or more units in a single building. There are also multi-story mid-rise and high-rise apartments with scores of rental units.

In the U.S., there’s a rating scale with letters ranging from A to D, which attempts to classify the caliber of apartment buildings:

  • Class “A” apartment building: Luxury rentals less than 10 years old, or older renovated buildings; garden, mid-rise, or high-rise buildings; amenities (e.g., pools, tennis courts, and clubhouses)
  • Class “B” apartment building: Up to 20 years old; generally well-maintained; may have amenities; facilities are more dated than in Class “A” apartment buildings
  • Class “C” apartment building: Up to 30 years old; limited or no amenities; may have an apparent need for renovation and repair
  • Class “D” apartment building: Typically, over 30 years old; sometimes low-income, subsidized housing; few amenities; buildings usually need renovations and repairs

Most investors purchase class “B” and “C” properties because their cost is typically lower than class “A” properties, yet class “B” and “C” properties don’t demand the repairs, renovations, and intense management that class “D” properties require.

Consider Your Return on Investment

When apartment investing, you want to consider your return on investment (ROI). How much profit a building generates is a function of its size, income, and how much cash you have invested in the property. A smaller building with fewer units isn’t going to have the money-making potential of a larger property, but it won’t require as much cash to purchase or be as management-intensive.

Larger buildings with more rental units can produce more income, but they will require a larger upfront investment. Plus, the more units, the more you’ll need to consider how complex the day-to-day management will be. If you hire a property management company, it will take from your overall cash flow.

“If you’re buying an apartment complex, particularly on the smaller side, you have to be particularly scrappy with managing the property and handling any repairs. Apartment owners have to be highly responsive and anticipate problems that they never think of during initial purchase like pests, a broken elevator, or if the internet goes out. Otherwise, they must be willing to pay for a property management company that will, which might mean an annual property management fee.”

Scott Bierbryer, Co-founder and Chief Operating Officer,

3. Locate an Apartment Complex to Buy

There are many ways to locate an apartment building to buy. You can search for yourself, without professional help. Local Real Estate Investment Associations (called REIAs) may be helpful with buying an apartment building. Or, you can enlist the services of professionals, including real estate agents, commercial real estate agents, or business brokers.

Some of the ways you can locate an apartment complex to buy are:

Search ‘For Sale by Owner’ Apartment Complexes

A great advantage of for sale by owner (FSBO) properties is that the seller is not paying a real estate commission. That’s 6% or 7% you might be able to negotiate off the asking price. Some FSBOs list higher prices knowing buyers will deduct commissions from their offer. You also may be able to get favorable terms, such as owner financing, and not have to get a bank loan.

Use a Local Real Estate Investment Association (REIA) to Find an Apartment Complex

If you search for an apartment building yourself, consider joining a local real estate investment club such as those offered by the Real Estate Investors Association (REIA). These groups provide networking with other investors who may have apartment buildings for sale, or know someone who does.

Engage a Real Estate Agent

The real estate sales and brokerage industry provide access to the largest body of properties for sale, including apartment buildings. Every real estate agent has access to one or more Multiple Listing Services (MLS) that list all the properties for sale by every agency that participates in that MLS. Multiple-unit properties and apartment buildings are also listed in that database.

Real estate agents know the market and know how to determine values, so buildings will tend to be priced at the maximum allowable market value. Not every agent is experienced with selling apartments, so you’ll want to be sure you are working with someone who has a track record of multi-unit apartment complex sales.

Consider a Commercial Real Estate Agent When Buying an Apartment Complex

Commercial real estate agents specialize in selling commercial properties and have better access to apartment building listings. They also have access to the listings of other commercial brokerages that are not part of the typical MLS and know more details about the properties currently on the market. Commercial real estate agent commissions are typically in the 7% to 10% range.

Commercial real estate agents understand the different metrics used to evaluate apartment buildings and other financial principles you may not yet be familiar with. If you’re just learning how to buy an apartment complex, let them know you are a beginner and ask them to clarify things you don’t understand. Also, consider working with a buyer’s broker who can represent you during the transaction.

Consider Using a Business Broker

Business brokers sell businesses, but they also sell mixed-use properties such as commercial buildings that have residential units, smaller apartment buildings of five to 10 units, and apartment buildings. Like commercial real estate agents, business brokers might use business or finance terms you’re unfamiliar with. Don’t be afraid to ask for clarification.

4. Evaluate the Potential Apartment Complex & Neighborhood

When evaluating and buying an apartment building, be sure to consider the location, the numbers and sizes of units, the property’s amenities, if any, and any construction or renovation issues so you can address these early on.

Perform two financial assessments. The first is a basic estimate of income and expenses to see if the property will generate positive cash flow. If it does, perform a full evaluation of the building’s financials, including rent rolls, vacancy rates, rental loss, and any expenses you will acquire with the property (such as utilities and municipal costs). This is to make sure the purchase is viable.

More details about evaluating the apartment building and neighborhood are:

Assess the Location of the Apartment Complex

As with any real estate investment, you want to purchase an apartment building in a desirable area. Consider the outcomes of buying properties in blighted neighborhoods no matter how enticing a cheap purchase may seem. Some investors do make purchases in tough neighborhoods work, but if it is not in alignment with your goals, or you don’t have the skills to manage these properties, you may want to look elsewhere.

Better-located properties provide a stronger base of tenants, better tenants who will take better care of your property, higher rents, and a greater chance of appreciation for the building.

Consider the Number & Size of Units in the Apartment Complex

As mentioned earlier, if you are considering buying apartment buildings, you’ll want to consider how many units each property has. You’ll also want to consider the square footage of those units and the number of bedrooms and baths.

Studio or efficiency units can be difficult to rent outside of college campuses and high population areas. One-bedroom units are easier to rent than studios, but your best bet is two-bedroom units and larger. A couple, particularly with a child, will want that second bedroom. Even a single person may want a second bedroom for guests or as a home office. It opens a larger market of potential renters than a one-bedroom does.

Note Apartment Complex Amenities

Amenities help drive interest in your property. These include everything from washers and dryers in the units to covered parking or garages, convenience stores, vending machines, swimming pools, spas, and gyms. The more amenities the property has, the more desirable it will be to tenants, and may command higher rents.

Pay Attention to Construction Details When Buying an Apartment Complex

The five most common problem areas of apartment building construction are:

1. Flat Roof

Flat roofs tend to breed all kinds of problems, particularly related to leaks. However, it’s somewhat hard to avoid them because so many older apartment buildings have flat roofs. Just be aware they can be problematic.

2. All Frame vs Brick

If a building is all wood frame, it’s prone to exterior paint and rot issues. That means the more exterior wood, the more exterior maintenance you’ll have to pay for. It also causes a more expensive insurance rating for fire.

3. Old Plumbing

If the building is more than 30 years old and the plumbing has never been replaced, be prepared for frequent plumbing repairs. Old pipes can leak and deteriorate. More importantly, you can have issues with lead, and pipes wrapped in asbestos mean more expenses to remove it.

4. Shared Utilities

Older apartments sometimes have shared systems for heat and electricity. This means the landlord pays for those utilities and tries to prorate it among tenants by charging higher rent. Since tenants aren’t paying for heat, and it’s not uncommon for some to raise the heat with a window open in the winter, increasing the landlord’s utility costs.

5. Asbestos & Lead Paint

Old buildings often contain asbestos in the insulation, HVAC systems, and exterior siding. Additionally, the interior may contain lead-based paint. Depending on where you live, you may have to mitigate those issues. It’s important to have a building inspector look for those materials, and check with your city and state to find out what remedies are required if they are present in the building.

Examine the Basic Numbers Before Buying an Apartment Complex

There are several basic numbers you can look at as you are evaluating an apartment building, including rent rolls, occupancy rate, and cost per unit. These will provide a preliminary look at the profit potential before you make a more thorough examination of the property’s financials.

The numbers you should examine before buying an apartment building are:

Apartment Complex Rent Rolls

Get the current rental amounts for every unit. Total those and multiply by 12 to get a ballpark idea of the gross annual rent. This is called the rent roll. A tool used by investors based on the rent roll to compare apartment building purchases is the gross rent multiplier. It compares the value of the building as a function of rents.

Apartment Complex Occupancy Rate

Occupancy rates tell you how much of the time a building is occupied. Vacancy rates tell you how much of the time a building is vacant. Ask about the property’s occupancy and vacancy rates. Check with real estate agents and landlord groups in your area to find out what vacancy rates are typical. Compare the figures to local industry averages.

Cost per Unit in an Apartment Complex

This is calculated by dividing the building’s purchase price by the number of units it contains. It will allow you to make comparisons with other apartment buildings you are considering and compare that figure with local average per-unit pricing. This figure can become a good bargaining tool if you want to purchase the building but the price is too high.

Evaluate the Full Financials Prior to Buying an Apartment Complex

Evaluating basic numbers gives a snapshot of the property’s financial performance. Before you make an offer, you need to get detailed financials for the property for one to five years. Gross operating (rental) income, expenses, vacancy rates, and certain ratios examine the viability of an apartment building and will affect your ability to get financing.

The numbers to help you evaluate an apartment complex include:

Gross Operating Income

Gross operating income is the total rent collected from the property. If you are buying a vacant apartment building, you may need to perform a potential rental income (PRI) analysis. A PRI is based on a rental market analysis according to the leases and terms of comparable properties in the area.


Expenses when buying apartment buildings include mortgages, interest, insurance, advertising, maintenance, repairs, utilities, municipal costs, property and other taxes, fees, management expenses, business expenses, and professional services.

It’s important to know what the total expenses are for the year, and what the patterns of expenses look like each month. Some months will have higher expenses than others, such as heating and snow removal in winter months, and cooling and landscaping in warm months.

Net Operating Income (NOI)

Net operating income is what remains from collected rent after paying all expenses. It’s a good idea to examine net operating income both monthly and annually. Net operating income is also known as cash flow. Cash flow can be positive, meaning you made money during that period, or it can be negative, meaning the property cost you money during that period of time.